Pawn Brokers

A pawnbroker is an individual or business that offers monetary loans in exchange for an item of value that is given to the pawn broker. The word pawn is derived from the Latin pignus, for pledge, and the items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral. If an item is pawned for a loan, within a certain contractual period of time the pawner may purchase it back for the amount of the loan plus some agreed-upon amount for interest. The amount of time, and rate of interest, is governed by law or by the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale by Pawnbroker/Secondhand Dealer.

The pawnbroker assumes the risk that an item purchased was actually stolen property. However, laws exist in many jurisdictions that protect both the community at large and the brokers from unknowingly engaging in criminal activity (buying and selling stolen goods). These laws often require the pawnbroker to establish positive identification of the seller through photo identification (such as a driver's license or government-issued identity document), as well as a holding period placed on an item purchased by a pawnbroker (to allow for local law enforcement authorities to track down stolen items). In some cities, pawnshops must give a list of all newly-pawned items and their serial number to the police, to allow the police to determine if any of the items have been reported as stolen. Some pawnshops set up their own screening criteria to avoid buying stolen property. In some areas where there is a great deal of bike theft, for example, pawnshop owners may decide not to accept used bikes, because the likelihood of them being stolen is too high.

If an item is pawned for a loan, within a certain contractual period of time the pawner may purchase it back for the amount of the loan plus some agreed-upon amount for interest. The amount of time, and rate of interest, is governed by law or by the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale by pawnbroker/secondhand dealer. Unlike other lenders, though, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker/secondhand dealer also sells items that have been sold outright by customers to the dealer.

The pawnshop owner takes into account their knowledge of supply and demand for the item in question to determine if they think that they will end up selling the TV for $100 to a wholesaler or $300 to a pawnshop customer. If the pawnshop owner believes that there are "too many used TVs around these days in town", they may fear that they will only get $100 for the TV if they have to unload it to a wholesaler. With that figure in mind as the expected revenue, the pawnshop owner has to factor in the overhead costs of the store (rent, heat, electricity, phone connection, yellow pages ad, website costs, staff costs, insurance, alarm system, etc), and a profit for the business. As such, the customer who comes in with this TV that they paid $1000 for when it was new may be offered as little as $50 by the pawnshop owner, who is taking into account all of the risk and cost factors.